Question

Nelson Software Inc has bonds on the market with a YTM of 7.79%, a coupon rate of 7.5%, and a current yield of 7.73%. The bonds have 22 years to maturity, pay semmiannual coupons, and are priced at 97. What is the effective annual yield on these bonds?a) 7.55%b) 8.55%c) 7.94%d) 7.5%

Answer 1

Answer: 7.94%

Step-by-step explanation:

The effective annual yield on these bonds would be calculated as:

= [1 + (YTM/2)]² - 1

= [1 + (0.0779/2)]² - 1

= [1 + 0.03895]² - 1

= 1.079417103 - 1

= 0.079417103

= 7.94%

Therefore, the effective annual yield on these bonds would be 7.94%.